Autumn Budget 2026

Autumn Budget 2026

The 12 months since the last Budget was delivered have seen significant change.

A more challenging global macroeconomic outlook, yet more inflationary pressures and, perhaps least expected of all, a new Chancellor.

In the weeks leading up to the Budget, many pundits expected a radical change from John Healey, but instead he promised measures that would provide “breathing space” to the UK, as it grapples with a challenging economy and a new cost of living crisis.

Given Andy Burnham’s recent commitments to spending in a number of areas, including housing, defence and social care, it was thought that the speech may include a number of tax raids, but the measures announced were more muted.

With a focus on certainty for businesses and individual taxpayers, Healey’s first Budget contained a plethora of small measures to collect tax and generate investment across many different areas.

As he prepared to take his seat at the end of his speech, he confirmed that the Budget would deliver “breathing space now and hope for the future” after delivering updates and measures in the following areas:

Economic outlook

The Chancellor entered Parliament facing a number of challenges, many of which remain outside of his control.

The ongoing conflicts around the world and persistent inflation meant that the Government is walking a fine line between fiscal responsibility and effective levers for driving economic growth.

This was evident in the Office for Budget Responsibility’s (OBR) latest growth figures:

  • 2026: 1.2 per cent, (up from 1.1 per cent forecast on the Spring Statement)
  • 2027: 1.0 per cent, (down from 1.6 per cent)
  • 2028: 1.6 per cent, (equal to 1.6 per cent)
  • 2029: 1.8 per cent, (up from 1.5 per cent)
  • 2030: 1.7 per cent, (up from 1.5 per cent)

From the beginning of his speech, Healey made it clear that fiscal headroom – the amount available for spending – had fallen from £23.6 billion to £15 billion since March.

As a result, the Chancellor’s war chest was smaller, but still projected to grow.

Seemingly, big announcements on defence spending and further investment in other areas, weren’t included as expected, but will form part of the next spending review.

Taking on the cost of living crisis

This Budget, as the Chancellor announced, was meant to offer “breathing space” and “hope” to businesses and individuals alike.

Announced shortly before the Budget was a number of changes to UK energy costs, with a headline grabbing move to abolish standing charges on gas bills by the end of 2027. This is expected to save the average billpayer £108 a year.

The Chancellor also promised to look into reforming the similar standing charge for electricity bills.

Alongside these measures, it was also confirmed that people living in homes in council tax bands A to D would get a £100 council tax rebate to help with energy costs.

To help manufacturers with rising energy costs, the Government will launch the British Industrial Competitiveness Scheme from 1 April 2027.

This will exempt certain energy-intensive businesses from the indirect costs of the Renewables Obligation, Feed in Tariffs and Capacity Market schemes.

Significant reforms to business rates were also confirmed to help struggling high street businesses.

Pubs, music venues and social clubs will get an additional 20 per cent relief on their business rates bill from 1 April 2027, carrying the full reduction to 35 per cent.

The Government will also increase its Small Business Rate Relief threshold from £12,000 to £18,000 so that a further 70,000 retail, hospitality and leisure businesses pay no business rates at all.

However, many of these businesses will also have to grapple with rising employment costs as a result of the National Living Wage and National Minimum Wage rates rising across the board by 3.9 per cent from 1 April 2027.

The 5p fuel duty cut will also remain in place to help businesses and workers with the sharp increases experienced at the pumps.

Taxing success

With such big spending commitments, tax rises were expected, but what was delivered was nowhere near as significant as earlier speculation had suggested and, in places, remains quite vague.

From April 2027, the lifetime limit for capital gains eligible for Business Asset Disposal Relief (BADR) will be reduced from £1 million to £500,000. This means that any capital gains on an eligible business sale above this new, lower threshold, will be taxed at a rate of 24 per cent for higher-rate taxpayers, instead of 18 per cent enjoyed up to £500,000.

The Chancellor also confirmed plans to review and update the tax rules governing distributions paid by companies to individual shareholders.

The aim is to create a fairer system by limiting arrangements that allow some taxpayers to extract profits in a more tax-efficient manner than others.

Reforms will protect tax treatment for genuine ownership changes, including family business succession, and could offer more generous demerger reliefs.

The Government will consult on the details before implementation in April 2028, but the full details of this change remain sparse.

In a more immediate change, from October 2027, online marketplaces must collect VAT on sales by UK businesses selling more than £90,000 through the platform.

Finally, the Chancellor also announced increases to the rate of Income Tax applied to savings interest and rental income. From April 2027, the tax rate on income from these sources will increase from 20 per cent to 24 per cent for basic-rate taxpayers, from 40 per cent to 44 per cent for higher-rate taxpayers, and from 45 per cent to 49 per cent for additional-rate taxpayers.

Not a new tax, but a new way of paying tax, will also be introduced for Self Assessment taxpayers. From April 2029, they will pay liabilities in smaller, more frequent instalments throughout the year.

A focus on new business

A large element of the Budget was focused on encouraging entrepreneurship and investment in the UK economy.

From small to large, the Government is taking steps to help with the establishment of new businesses.

For those looking into a new side hustle, the Government is tripling the Trading Allowance from £1,000 to £3,000 from 6 April 2027, to help people looking to make additional income.

A New Founders’ Relief will become available from April 2027 offering a 10 per cent Capital Gains Tax rate on up to £10 million of lifetime gains for founders of qualifying high-growth companies.

An additional £15.4 billion will be pumped into the National Wealth Fund, while the British Business Bank will see its own funds increased by £5 billion to provide investment to up-and-coming UK enterprises.

Further devolution was also mentioned during the speech to help regions set their own spending commitments and the Chancellor was keen to flag that the nation was also open to AI, innovation and data centres, with further information expected in future.

Pensions and investment reforms

There were a number of reforms to tax-efficient investments mentioned in the speech and subsequent Budget documents, but headlines were quickly grabbed by the announcement of a new Pension Tax Allowance.

This will be available from April 2027 to April 2030 to pensioners whose income is at or below the full new State Pension to ensure that they won’t be pulled into paying tax by pension increases. This will work on a taper system that keeps pensioners protected, but ensures higher earners still pay.

The previous cut to Cash ISAs for under 65s was also dropped, so the annual tax-free limit will remain at £20,000.

The Government will, instead, explore a new incentive for people opening a Stocks and Shares ISA for the first time.

A new First Time Buyer ISA will replace the Lifetime ISA for new savers from April 2029.

It pays a 25 per cent bonus on homes worth up to £450,000, capped at £20,000.

From 29 October 2026, the LISA withdrawal charge for buying above the price cap falls to 20 per cent.

Final thoughts

Many expected the Chancellor to deliver significant change, but what emerged was a series of smaller measures that seem to have been designed to deliver stability and calm.

The lack of any significant increases in taxation may surprise many, but with rises spread across a wide area and offset by support and savings in others, the Government may be able to stick to its own fiscal rules, while offering help where it is needed most.

Link: https://assets.publishing.service.gov.uk/media/6ae1ec57bdb574cf1c9b3f12/E03668986_HMT_Budget_2026_ELAY__2_.pdf

Paternity leave updates introduce more flexible arrangements

The newly introduced Paternity Leave Amendment Regulations 2024 enable fathers or partners to divide their statutory paternity leave entitlement into two separate weeks, offering greater flexibility for new parents.

This regulation applies to all cases where the expected week of childbirth or adoption occurs on or after 6 April 2024, allowing leave to split across the first year following the child’s birth or adoption.

Previously, for children born before 6 April, the legislation permitted fathers or partners only to take a single, uninterrupted period of one or two weeks’ leave within the initial eight weeks post-birth.

This adjustment marks a considerable shift towards more adaptable family support measures.

Additionally, the updated rules reduce the notification period for each leave segment to 28 days, or four weeks, from the previous 15 weeks ahead of the expected week of childbirth, simplifying the process for employees and payroll departments alike.

Alongside these paternity leave adjustments, other family-oriented regulations are set to come into effect on 6 April across England, Scotland, and Wales.

These include enhanced redundancy protections for new parents, carer’s leave, and the right to request flexible working from the commencement of employment.

If you would like to know more about these changes, please contact our payroll team today.

Adjustments to National Insurance Contributions: What you need to know

The Spring Budget 2024 introduced significant updates to National Insurance Contributions (NICs), which are important developments for both employers and their staff.

Set to take effect from 6 April, these changes are designed to lighten the financial load on employed and self-employed people by reducing the percentage of their income that contributes to NICs.

This initiative is part of a broader Government aim to boost economic growth by increasing net earnings and promoting employment.

For those in charge of payroll, it is essential to adjust to these changes swiftly to ensure smooth operations and compliance with the law.

Our perspective on upcoming NICs modifications

The upcoming adjustments to NICs are centred around reducing the contribution rates for both employed and self-employed individuals:

  • Employees will benefit from a reduction in the primary Class 1 National Insurance contribution rate, moving from ten per cent to eight per cent.
  • Self-employed individuals will see the main Class 4 National Insurance contribution rate decrease from nine per cent to six per cent, following a prior announcement in the Autumn Statement 2023 which reduced the interim rate from eight per cent to six per cent.

These could potentially boost disposable incomes and encourage increased economic activity as a result.

The role of payroll departments in implementing these changes

For payroll professionals, addressing these changes effectively involves several critical steps:

  • Updating payroll systems: Ensuring payroll software reflects these new rates from their start date is critical. Coordinating with software suppliers to guarantee timely updates is essential.
  • Communicating with employees: It’s important to clearly communicate to employees how these changes will affect their take-home pay, possibly necessitating updates to payslip formats and comprehensive explanations of the adjustments.
  • Building knowledge: Payroll staff must fully grasp these changes. Engaging with training provided by professional organisations or HMRC can support this understanding.
  • Anticipating workload increases: Adapting to the new NIC rates may temporarily raise administrative demands. Proactive planning, including system updates and communication strategies, can help in minimising potential issues.

After implementing these strategies, your payroll department will find itself better positioned not only to manage these changes effectively but also to support employees through this transition, maintaining clarity and confidence throughout the process.

Effective strategies for a smooth adjustment

To manage these updates with minimal disruption, payroll departments should adopt the following strategies:

  • Initiate preparations early: Beginning adjustments well ahead of the 6 April effective date can lead to a more seamless transition.
  • Embrace technology: Fully utilising payroll software features to accommodate these changes can greatly simplify the transition.
  • Seek support: A wide range of support is accessible from HMRC, professional payroll associations, and software providers. Utilising these resources can offer further insights and clarification.

With the Spring Budget 2024 bringing forth reforms designed to alleviate the NIC burden for workers and self-employed individuals, there is a clear opportunity to contribute to a stronger economy.

However, payroll departments will be vital in ensuring these changes are executed efficiently, ensuring legal compliance, and minimising any disruptions to operations.

To keep up with this increased workload, you should discuss the issue with a payroll specialist.

We can help you reduce costs and help you maintain compliance in light of the new changes.

Please reach out for more information and guidance.

Are you ready for the changes to the NLW and NMW?

The Government has introduced updates to the National Living Wage (NLW) and the National Minimum Wage (NMW), effective from 1 April.

In one of the largest rises in these rates, from 1 April 2024, employees in the UK will be entitled to:

NMW Rate Increase in pence Percentage increase
National Living Wage (21 and over) £   11.44 £     1.02 9.8%
18-20 Year Old Rate £     8.60 £     1.11 14.8%
16-17 Year Old Rate £     6.40 £     1.12 21.2%
Apprentice Rate £     6.40 £     1.12 21.2%

 

Significantly, this latest change also extends the NLW to 21- and 22-year-olds for the first time, bringing many more working people into the highest minimum wage category.

Apprentices will still be entitled to the minimum wage for their age category once they have completed the first year of their apprenticeship.

Preparing for the changes

To prepare for these wage adjustments, business owners will need to take several steps.

First, conduct a thorough review of your current payroll to identify employees eligible for the new rates.

Updating your payroll system to incorporate these changes by 1 April is going to be essential for compliance.

You’ll also need to communicate the upcoming wage changes to your employees to maintain transparency and trust within your organisation.

Additionally, assess the financial impact these increases may have on your business operations – you might need to revisit your pricing strategy or budget to accommodate the higher labour costs.

Offering training and development to employees can also enhance productivity, helping to offset the increased wage expenses.

Finally, if you require further guidance or advice on this, you should speak to a qualified and experienced payroll specialist who can assist you in meeting the compliance requirements without breaking the bank.

Please get in touch with one of our payroll experts for more information.

Mandatory reporting of benefits is coming soon

Commencing April 2026, it will become mandatory for UK employers to integrate employee benefits, such as company cars or health insurance, into their payroll system.

This alteration aims to streamline tax administration for employers by taxing these benefits through the payroll, eliminating the need for separate reports.

What are your new responsibilities?

With this change, selecting which benefits to report through payroll and which to report separately will no longer be an option – all must go through payroll.

Consequently, you will need to:

  • Monitor your data with increased accuracy and diligence.
  • Assume greater responsibility in managing PAYE, which will undergo more thorough scrutiny.
  • Clearly communicate these changes to your employees to ensure they comprehend the taxation of their benefits.
  • Verify the compatibility of your payroll software with these changes and make necessary adjustments.
  • Navigate the complexities of managing specific benefits, such as loans or company cars, under this new regime.

Employees may notice fluctuations in their monthly cash flow due to the inclusion of benefits in kind in their payroll so it’s important to make them aware of the changes in advance.

This adjustment may also result in variable take-home pay, particularly in the first year following this change.

Practical steps to manage the changes

To navigate these modifications with ease, consider the following actions:

  • Employers offering non-monetary perks to their employees without reporting them through payroll should think about making the switch before it’s required in April 2026. The deadline for employers to register with HMRC to include these benefits in the payroll for the tax year 2024/25 is 5 April 2024.
  • Begin preparations immediately by evaluating your existing payroll processes and benefits management for required adaptations.
  • Confirm that your payroll software supports the inclusion of benefits in kind. Plan for any essential upgrades and conduct tests well ahead of time to circumvent last-minute difficulties.
  • Educate your payroll and HR teams on the new mandates, including changes in tax calculations and reporting.
  • Formulate a comprehensive communication strategy to inform your employees about the impact of these changes on their pay and taxation.
  • Encourage employees to reassess their personal finance and budgeting strategies in light of potential alterations in their monthly net pay.

By adopting these measures, you can facilitate a seamless transition to the updated system and ensure adherence to the revised tax regulations.

Preparation ahead of time and transparent communication with your employees are vital to effectively manage this transition, as well as liaising with a payroll expert.

We are here to assist you in understanding these changes and identifying potential challenges to keep your business in compliance.

Should you need guidance on payroll, please feel free to reach out.

Holiday accrual to come in for zero-hours workers

Following changes to the Working Time Regulations 1998 in January 2024, further amendments are set to come into force on 1 April 2024 relating to leave entitlement for workers on irregular hours.

Upcoming changes will apply to workers on zero-hours or irregular hours contracts, as well as those who are on ‘part-year’ contracts, such as those who work seasonally.

By definition, these are workers whose hours:

  • Are laid out in their contract as variable for each pay period
  • Only require them to work for part of the year.

For example, a worker on a zero-hours contract is not guaranteed a certain number of hours each pay period, so they come under the scope of the new regulations.

Alternatively, a student worker who is only contracted to work during term time also meets the definition of irregular hours.

What will these changes look like?

These new regulations aim to reduce confusion around the holiday entitlement for workers on irregular hours.

They are also designed to avoid workers accidentally being assigned more or less holiday than allowed by their entitlement.

Irregular hours workers will accrue holiday based on 12.07 per cent of the hours worked within a particular pay period.

This means that entitlement will be calculated in hours instead of days.

Permitted methods of holiday pay

Updates to the Working Time Regulations also provide for two ways of paying holiday pay to workers.

Employers can either:

  • Pay for holidays in the pay period in which they are taken
  • Use the ‘rolled up’ method, which adds a percentage of total holiday pay onto each pay period

Although not previously allowed, rolling up holiday pay will be permitted from 1 April – but it must follow certain rules.

If the ‘rolled up’ method is used, you must make it clear on a worker’s payslip what proportion of their pay comes from holiday pay. You must also pay it in the period in which the holiday accrues and calculate it based on total earnings during a pay period.

When do these rules apply?

New regulations will come into force on 1 April 2024 – but it is more complex than this.

Workers will be entitled to their new holiday entitlement starting from the next holiday year after 1 April.

For example, if your holiday year runs from 1 April to 31 March, the new regulations will apply straight away.

However, if your holiday year runs from 1 January to 31 December, then new holiday allowances will apply only from 1 January 2025 and for every holiday year following that.

For more payroll advice and support with planning for staff costs, please get in touch with us.